How does the European Commission monitor the Housing Market? By Peter Pontuch, DG Economic and Financial Affairs European Commission

1. Housing market surveillance
Peter Pontuch
DG Economic and Financial Affairs
European Commission
"Housing Finance" conference, Brussels, 5 November 2014

2. 2
The crisis as a wake-up call
Better enforcement
of rules
Focus on debt
developments in
addition to the deficit
Actions for Stability,
Growth and Jobs
Economic Governance
• Compliance with the Stability and
Growth Pact did not guarantee
overall macro-financial stability (e.g.
Spain, Ireland).
• Large macro-financial imbalances
accumulated ahead of the crisis,
without efficient surveillance
procedures.
• Unwinding of such imbalances
contributed to unprecedented depth
of recession and weighed heavily on
public finances.
Fiscal Governance
• Limits of the preventive arm
• Limits of the corrective arm
Crisis resolution mechanisms
• Insufficiency of existing
mechanisms
• No existent instrument to anchor
market expectations

3. Macroeconomic imbalance procedure (MIP)
Context:
Enhancing economic governance in the EU and the euro area (the 'Six-pack')
Macroeconomic surveillance
New regulation on prevention and
correction of macroeconomic
imbalances
3
Enforcement
New regulation on effective
enforcement of macroeconomic
surveillance
Sanctions in case of persistent
inaction/insufficient action
Fiscal surveillance
- Prudent fiscal policy
- Debt criterion
- Minimum standards for fiscal
frameworks
Enforcement
New regulation on effective
enforcement of budgetary surveillance
Stronger incentives & sanctions

4. Why is housing a central topic in MIP?
 Links between housing markets  credit 
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construction  current account and competitiveness
 Broad implications of a housing market correction
 Impact on consumption and investment
 Banking sector fragilities and restricted credit to the economy
 Increased economic and social distress
 Challenge: grasp housing market incentives in their entirety
to explain macroeconomic developments and to formulate
country-specific recommendations.

5. Relevant institutional incentives 1/2
• Mix of
both
• Supply
elasticity
• Demand
shifts
• Demand
shifts
Tax
Treatment
Prudential
Policy and
Mortgage
Market
Features
Rental
Market
Land
Regulation

6. 6
Relevant institutional incentives 2/2
 Split countries into L/M/H demand incentives for home-ownership
 'High incentives' group experienced higher increase in household leverage
and house price misalignment in the previous housing cycle.
Household sector leverage
2000-2008, p.p. change
House price misalignment
2008, %
Source: European Commission (2014), "Institutional features and regulation of housing and mortgage markets",
Quarterly report on the euro area 13 (2).

7. MIP In-Depth Reviews: issues covered
Main issues
External sustainability ES, IE, FR, HR, HU
Presistently large surplus DE, (NL, SE, LU)
Price/non-price
competitiveness
BE, FR, IT, HU, SI, FI, UK, ES, HR, DK, LU, SI
Housing and mortgage markets ES, NL, SE, UK, IE, HU
Household indebtedness DK, IE, ES, FR, HR, HU, MT, NL, LU, SE, UK
Corporate indebtedness IE, ES, HR, HU, SI, UK, LU
Labour market BG, IE, ES
Financial sector stability IT, ES, IE, SI
Other issues
Public debt, potential growth, subdued demand/low investment
Unemployment, energy dependence, innovation and R&D, state-owned enterprise,
networks, FDI, etc.
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8. Link between MIP and CSRs
• Countries with imbalances
received country-specific
recommendations (CSR) with
relevant policy responses
• MIP relevance was signalled
in the CSR legal document:
basis was the discussion in
IDR.
• Five housing-related CSRs in
2014.
Number of CSRs in 2013 and 2014, by policy area
0 5 10 15 20 25 30
Source: Commission services
Fiscal Consolidation
Long-term sustainability
Taxation
Banking
Housing
Access to finance
ALMP & participation
Wage setting
Education
Social polices
Health care
Childcare
Innov. & competitiveness
Competition
Energy, networks
Public administration
Financial sector Public finance
Labour
market
reforms
Human capital and
social policies
Product market
. reforms
2013
2014

9. Conclusion
 Main challenge: find the appropriate incentive structure for
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the housing market
 How to define "appropriate"?
 Including an EU dimension in addition to national competence,
 Focusing on existing biases towards the accumulation of imbalances,
 Looking at broad housing incentives (incl. rental and mortgage markets),
 Based on analytical work that can serve as a basis for policy discussion.
 Positive recent trends:
 Less demand-stimulating lending practices and tax incentives,
 Refocus of affordable housing towards those most in need.

10. Thank you!